- A Midwest couple earns $200k but are in debt caused by ‘lifestyle creep’
- The couple live paycheck-to-paycheck with a mortgage and personal debt
- The situation is common among high earners with many overspending
A couple from the Midwest are in almost $800,000 of debt despite both of them working, having rental properties to generate extra income and living in a relatively cheap Midwestern city.
The pair, who live in Des Moines, Iowa have fallen into what financial advisor Dave Ramsey terms ‘lifestyle creep’ – a phenomenon where consumers ramp up expenses as fast or faster than income.
Despite the husband and wife earning a base salary of $175,000 and bringing in an additional $20,000 from rental properties, the couple still find they’re living paycheck-to-paycheck having racked up an enormous $785,000 worth of in debt.
Husband, Aaron, plans to sell the couple’s rental property worth $325,000 in order to alleviate their debt but his wife is hesitant to sell citing emotional ties and not believing in living life debt-free.
Such a scenario is common among high-income earners, with nearly half of all six-figure earners living paycheck-to-paycheck.
The median U.S. household income was $74,580 in 2022, according to the latest Census data.
Aaron’s salary of $175,000 combined with passive income from rental properties put him in the top 20 percent of earners in the country.
But Ramsey diagnosed ‘lifestyle creep’ as the reason behind Aaron’s primary cause of increased spending. This is where an increase in earnings have also led to a corresponding rise in spending.
‘Less than a year ago my salary doubled and we just kinda went crazy,’ Aaron told Ramsey on his podcast.
The couple have racked up a colossal amount of debt with a $450,000 outstanding mortgage debt on their main home and a further $192,000 on an investment home.
On top of that, the couple have a mix of personal loans, car loans, student loans, and credit card debt.
Rising interest rates have only made the debt harder to tackle.
‘You guys are seriously broke!’ Ramsey declared upon analyzing the couple’s situation. ‘You’ll are freaking starving to death making $200,000 and spending like you’re in Congress.
‘You have a pretty serious level of denial inside your household’, Ramsey said bluntly. ‘I think I am more upset about this than you are.
‘I think the two of you need to understand you can’t live like this. This is ridiculous. You’re working your butt off and going backwards,’ Ramsey said.
Ramsey says the couple need to quickly control their spending, sell the rental property and overcome any psychological barriers to financial freedom.
At $325,000 the proceeds from a sale would be enough to cover their outstanding debt allowing them to focus on their mortgage.
Ramsey and co-host Jade Warshaw note that many Americans overspend in order to maintain appearances, but emphasized that financial well-being improves when you stop trying to impress others.
‘Not caring what people think is a superpower’ Ramsey says, believing that ignoring others’ opinions is a ‘superpower’ that can significantly enhance financial health.